A cheque is, pursuant to Article 795 of the Turkish Commercial Code No. 6102, a negotiable instrument payable on presentment; any stipulation contrary to that character is deemed void. That provision requires the cheque to be submitted to the drawee bank within the statutory period for presentment, calculated by reference to the date of issue written on the instrument. The aim is thus that the cheque should function not as an instrument of credit but as a means of payment.
By contrast, the provision in Article 3 of the Cheque Act No. 5941 that “until 31/12/2020, the presentment of a cheque to the drawee bank for payment before the date of issue written on it is invalid” rendered invalid the taking of post-dated cheques to the bank before their date of issue. Although difficult to reconcile with the legal character of the instrument, this choice coincided with commercial habits in Türkiye and opened the way for the cheque to become, in practice, a deferred means of payment.
A composition with creditors, for its part, is a process that begins with the court granting the debtor a provisional moratorium and that rests on an agreement whose content and method take shape around the maturity of the debt and the rate of reduction to be applied. The process concludes with a court decision approving or refusing the composition, and that decision produces effects both for the debtor and for the whole body of creditors.
In this note we address how criminal liability is to be determined where the “insufficient funds” endorsement is applied to the cheque of a debtor who has obtained a provisional moratorium, the function of the institution of the preliminary issue at that point, and the moment to which the periods for complaint are tied.
The Composition Process and the Judicial Approach
Assessing the divergent conclusions reached by the regional courts of appeal, the 19th Criminal Chamber of the Court of Cassation set out the framework on the subject in its decision of 19.06.2019:
“In its decision on the question whether the persons authorised to manage the company are liable for the ‘offence of causing an insufficient funds endorsement to be carried out’ in respect of a cheque drawn and delivered before the beginning of the composition process but presented, and found to be unfunded, during that process (in the phase following the grant of the provisional moratorium), it held first that the ‘composition process’ pending before the civil court must be treated as a preliminary issue. It was stated that, where the composition process comes to an end with a decision approving the composition, no criminal liability arises. Where the request for a composition is refused, it was stated that it must be established to whom, during the composition process, the powers to manage the cheque account, to transfer funds into that account and to dispose of the cheque account belonged. As regards these powers, it was held that, unless the court conducting the composition process has conferred ‘authority’ on the commissioner, those powers rest with the management body of the company and that a penalty is to be imposed pursuant to Article 5 of the Cheque Act.”
The general operation of the institution, the conditions for applying for it and the procedure for its announcement form the subject of a separate note titled What Is a Composition with Creditors? How Is It Announced?
The Relevant Provisions of the Cheque Act
Before discussing the effect of a composition on criminal liability for the offence of causing an “insufficient funds” endorsement to be carried out on a cheque, it is useful to know the constituent elements of the offence itself. In this respect our study titled The Offence of Drawing a Dishonoured Cheque may also be consulted.
The source of the sanction is Article 5 of the Cheque Act No. 5491:
Cheque Act Art. 5
“Upon the complaint of the holder, a judicial fine of up to one thousand five hundred days shall be imposed, in respect of each cheque, on the person who causes the ‘insufficient funds’ endorsement to be carried out in respect of the cheque upon its presentment within the statutory period for presentment calculated by reference to the date of issue written on it. However, the judicial fine to be imposed may not be less than the unpaid amount of the cheque (…).”
Cases in Which a Dishonoured Cheque and a Composition Coincide
On the approach of the 19th Criminal Chamber of the Court of Cassation, the enforcement criminal court must treat the composition proceedings running in the field of private law as a preliminary issue within the framework of Art. 218(1) of the Code of Criminal Procedure. Depending on the outcome reached by the commercial court, two distinct positions emerge.
If the composition is approved: the agreement, once final, reshapes the effects and consequences of the instrument forming the subject matter of the offence. As a result of that redetermination, the instrument loses the quality of a cheque bearing the necessary elements of the offence; criminal liability cannot therefore be attributed to the defendants.
If the request for a composition is refused: the preliminary issue disappears and the criminal proceedings continue from where they left off. The point to be noted here is that the appointment of a commissioner does not of itself bring to an end the powers of management and representation of the company’s directors. The content of the decision given by the court conducting the composition must therefore be examined. Two possibilities arise:
- Where, for the period up to the refusal, the powers to manage the cheque account, to transfer funds into that account and to dispose of the account were removed from the management body and transferred to the commissioner, and the cheque proved to be unfunded during the phase in which the commissioner held those powers, the company’s officers cannot be held liable under Art. 5 of the Cheque Act.
- Where, for the same period, there is no express decision showing that the powers to manage the account, to transfer funds into it and to dispose of it have passed to the commissioner, those powers continue to rest with the company’s directors and the criminal liability under Article 5 of the Cheque Act remains intact.
Cheques Endorsed as Unfunded Before the Composition
In practice one encounters cheques to which the “insufficient funds” endorsement was applied before the composition was announced but in respect of which no complaint has yet been lodged on that ground. Had the complaint been made before the composition was announced, the announcement would have become a preliminary issue for the criminal proceedings and the process would have proceeded on that footing. The critical point is the period for complaint. The moment at which the offence of drawing a dishonoured cheque is committed is the date on which the instrument is submitted to the drawee bank. For proceedings to be brought, the holder must lodge a complaint within three months of the day on which they learned of the offence and in any event within one year.
Since the inclusion of the unfunded amount of the cheque within the scope of an approved composition plan constitutes a negative procedural condition, had the action been brought earlier the composition would have been treated as a preliminary issue. Where no action has been brought, by contrast, the period for complaint begins to run not from the day of presentment but from the day on which the decision refusing the request for a composition is served on the entitled holder. That said, cheques in respect of which the period for complaint had already expired as at the date on which the composition was announced do not benefit from this possibility; for them the period is not revived.
The position changes where both the date on which the cheque was drawn and the date on which the “insufficient funds” endorsement was applied fall before the composition process. Where no composition process is regarded as having begun at the moment the “insufficient funds” endorsement was carried out, it emerges that the offence was committed in a period in which the debtor had full control over their bank accounts. Even if the debt underlying the cheque is subsequently brought within the scope of the composition, the decision to emerge from the composition is of no significance when it is considered whether the act may be attributed to the defendant. For this offence is one of an instantaneous character; where the conditions required for its constitution have materialised, the debtor’s criminal liability must arise and no recourse should be had to the preliminary issue.
Indeed, in the judgment of the 20th Civil Chamber of the Court of Cassation dated 15.06.2020, docket no. 2020/2053, decision no. 2020/6650, the ruling was framed as follows:
“where the offence of ‘causing an insufficient funds endorsement to be carried out’ is committed in respect of a cheque drawn on behalf of a legal person while no composition action (composition proceedings) has yet been brought before the Commercial Court against that account-holding legal person, it being assessed that there is no factual or legal ground for treating a composition action to be brought after the commission of the offence as a ‘preliminary issue’ in the criminal action brought and pending before the Enforcement Criminal Court; it was decided unanimously on 15.06.2020 that it is possible, by continuing with the criminal proceedings brought, to enter a conviction where the conditions for it are present.”
The Effect of the Composition Process on the Offence
More than one scenario may present itself. The first possibility is approval of the composition: in line with the effects and consequences of the agreement once final, the instrument, redetermined for the period after the date of presentment, ceases to be a cheque bearing the necessary elements of the offence. There can therefore be no question of criminal liability on the part of defendants representing the legal person.
The second possibility is the position that will arise where the request is refused. Pursuant to Article 297 of the Enforcement and Bankruptcy Act No. 2004, the appointment of a commissioner does not of itself extinguish the powers of management and representation of the legal person’s authorised representatives. That said, the court has the power to determine which transactions are to be carried out by the company’s directors and which by the commissioner.
Where the court has removed powers such as the management of the cheque account, the transfer of funds into that account and disposal over the account from the management body and left them to the commissioner, no criminal liability arises for the natural persons representing the company. Where, by contrast, no such express determination has been made, all the powers in question remain with the company’s officers and their liability under the Cheque Act continues.
Independent Legal’s Assessment
In files where a composition and the offence of drawing a dishonoured cheque intersect, the decisive element is more often than not chronology rather than argument on the merits. Whether the “insufficient funds” endorsement was carried out before or after the provisional moratorium, which powers were transferred to the commissioner and on what date, and the moment to which the complaint is tied, directly determine on whom liability falls. When a defence or complaint strategy is being framed, all the interlocutory decisions in the commercial court file must therefore be obtained.
In a concrete dispute, the following matters should be addressed as a priority:
- Establishing into which period the act falls, by comparing the date of the “insufficient funds” endorsement with the date of the provisional moratorium
- Documenting whether the court conducting the composition gave an express decision transferring the powers relating to the cheque account to the commissioner
- Raising the request for a preliminary issue in the criminal file in accordance with the prescribed procedure
- Recording the date on which the decision of refusal was served on the holder, for the purposes of the start of the period for complaint
- Distinguishing between cheques whose period for complaint had already expired at the date of presentment and those whose period is still running
- Examining the reduction and maturity terms on which the cheque claim appears in the composition plan
Independent Legal provides advisory services in the fields of commercial law and enforcement and bankruptcy law, from the preparation of composition applications to the conduct of criminal proceedings arising from negotiable instruments.